Why You Should Avoid Long Term Car Loans

Financing a car is a common practice within the United States, considering that car loans are relatively easy to obtain. Most car dealerships will take $0 down and do not have a minimum credit score requirement, meaning most people will be able to obtain a car loan if they desire it – they just may have to pay more. Alongside these attributes, lenders also offer various timeframes for the loan, with some loans extending out to 84 months or even further. This is what is considered to be a long-term car loan and it is becoming increasingly more popular as it allows borrowers to purchase the cars they want. While longer terms will mean lower payments, there are quite a few drawbacks to signing this type of loan that will affect you financially. 

The second you drive a car off the lot, it begins depreciating. Depreciation makes your car worth less with every mile that it makes down the road, meaning that in only a few short years your car will be worth significantly less than what it is worth today. Since you wouldn’t be paying it outright and are financing it long term, this also means that will be paying more in interest. Long-term loans carry higher interest rates, which are tacked onto your monthly payment and will add up to be considerably more than what the car’s price tag was stated at the time of purchase. There are also a series of unfortunate events that could occur that may affect your finances, such as medical bills or any other form of unaccounted expenses. You may also be seeking to save up and purchase a home or invest in something, which will be limited by your monthly car payments. If your finances are turned upside down and you are unable to afford the payments, this will hurt your credit score and even lead to your car being repossessed. Holding long-term car loans for seven to eight years will only hold you back financially and prohibit you from getting ahead.